The Corner

Obamacare and the Fundamentals

The conspiracy theory about the woefully misnamed Affordable Care Act is that the architects of Obamacare intended their program to fail, thus creating an opening for a so-called public option which would then be expanded to a full-on British-style government health-care monopoly. That’s a fun story, though it isn’t true.

The truth is worse: These idiots thought this would work.

Well, not this — not exactly. Obamacare is what you get when the product is designed by a committee from the marketing department. It needed to have a certain balance of taxes and subsidies so that Barack Obama could go out and say that it would add not one dime to the deficit while Ezra Klein and the nonpartisan partisans at Politifact cheered along. Everybody knew that the specifics were going to change with the political winds — Hillary Rodham Clinton even campaigned against a key revenue provision of Obamacare, the “Cadillac tax,” in her quest for the Democratic nomination.

That the popular bits of the program would remain or be expanded while the unpopular bits that pay for it would be revised, delayed, or magicked away through exemptions and the like, was obvious, and not only to pointy-headed free-market types such as myself. (Although: I told you so. So did a bunch of other people.) The Congressional Budget Office all but rolled its eyes at the set of assumptions it was given to score the bill’s fiscal effects, and it warned that the bill was unlikely to be enacted to the letter. Which is to say: The CBO told you so, too.

The Democrats promised something very unlikely: That we’d provide more health-care coverage for more people and spend less money doing it — and that the typical annual health-insurance premium for an American family would decline substantially, by an average of $2,500 a year. The opposite is happening: Premium prices have gone up, and they are expected to go up by 25 percent in the coming year. That’s an average of 25 percent: Some places will see much steeper increases.

Is there another product you use the price of which increases at that rate, or anything like that rate?

The terrifying fact is that the architects of Obamacare thought they could brazen their way through this, that they were so smart that they could tell you rubes whatever it was you needed to hear to get the bill passed and then just fly by the seat of their pants, fixing everything on the fly in a grand display of enlightened technocratic adhocracy.

Oops.

This all goes back to fundamentals: What drives down prices is abundance. Abundance comes from productivity. Productivity comes from investment. Investment requires stable market conditions for investors, entrepreneurs, workers, and firms to execute medium- and long-term plans. If you were the manager of a large investment fund, how much money would you put into a medical-devices startup, not knowing what the tax or regulatory environment is going to look like the day after tomorrow — or what the larger health-care ecosystem is going to look like in a year or two? If you were a top-performing student with a knack for science, why on Earth would you go to medical school when you could go make four times the money as an intellectual-property lawyer, six times the money on Wall Street, or, with a little luck, forty times the money in Silicon Valley? Given the current Democratic appetite for price controls and regulatory aggression, how much of your own money would you invest in an experimental pharmaceutical? If you were a top-performing manager being courted by a hospital consortium and a technology company, why would you go to work for the hospitals?

Obamacare was intended, in theory, to enhance competition. The Democrats were never quite clear on how that was going to work, but that’s what they said. In Philadelphia, the nation’s fifth-largest city, those shopping for health insurance have a grand total of two insurers to choose from. Until recently, the state of Pennsylvania had 13 insurers; today, it has eight.

It is worth keeping in mind that the people who brought you Obamacare want to apply the same model across the commanding heights of the U.S. economy. 

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